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Decoding GIPS

August 1, 2011 2 Min Read Investment Industry
Thomas A. Peters, CPA, CIPM
Thomas A. Peters, CPA, CIPM Director, Investment Industry Group

Global Investment Performance Standards (GIPS) are broadly accepted, voluntary global standards for calculating and presenting investment performance. The standards are ethical principles that promote fair representation and full disclosure of investment performance to prospective clients.

By standardizing investment performance reporting, investors around the world gain the additional transparency needed to compare and evaluate investment managers. Conceptually similar to U.S. GAAP and IFRS, which are standards companies follow in financial statement reporting, GIPS are rules investment firms can choose to follow for investment performance reporting.

Created by the CFA Institute, the global standards are governed by the CFA Institute’s GIPS Executive Committee, nine investment industry professionals representing various regional, technical, and other stakeholder groups.

All or Nothing

Once a firm chooses to comply with GIPS, it must apply the standards to all discretionary assets they manage. It cannot apply the standards to just one product or composite. A firm can claim compliance with GIPS after all of the required elements are met.

On a side note, a firm’s compliance with regulatory requirements (such as SEC rules) does not equate to GIPS compliance, and vice versa. GIPS is a separate set of rules that typically goes above and beyond regulatory requirements for reporting investment performance.

Really Compliant?

A firm’s claim of GIPS compliance can be audited via verification or a performance examination. Verifications are performed by independent third parties (often CPA firms) to assess compliance with all the composite construction requirements on a firm-wide basis and if its policies and procedures are designed to calculate and present performance in compliance with GIPS. Although verification brings additional credibility to the firm’s claim of compliance, it does not confirm the accuracy of any specific composite presentation.

A firm can also have a composite examination of a specific composite performance presentation. Composite examination reports specifically address whether a specific composite presentation is in conformity with GIPS.

How Does GIPS Help?

GIPS helps investors by improving reporting transparency to ensure that investment performance has been presented on a consistent, reliable, comparable, and fair basis. It also indicates that a firm has made a voluntary commitment to provide prospective clients with performance presentations that adhere to globally accepted ethical standards.

Thomas A. Peters can be reached at Email or 215.441.4600.

Contact the Author

Thomas A. Peters, CPA, CIPM

Thomas A. Peters, CPA, CIPM

Director, Investment Industry Group

Investment Industry Specialist, Owner Operated Private Companies Specialist, Private Equity-Backed Companies Specialist

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